RMDS not taken | Ed Slott and Company, LLC

RMDS not taken

Client's father had a Roth with Client as beneficiary; father died in 2001. Account was changed to an inherited Roth with Client as beneficiary.

Client had been receiving statements after father's death, but never took RMDs, thinking that RMDs didn't apply to Roths. Client says that he didn't see (more likely didn't pay attention to) the RMD notices that were on the statements. Needing funds, Client decided to close the Roth in 2020.

Has anyone uncovered an approach (that IRS has accepted) in a similar situation that doesn't involve amending 17 years of tax returns and paying the 50% penalty tax for each year?

How old was father on DOD?

He was 75.

That eliminates the 5 year rule. He should have taken life expectancy RMDs every year but 2009. Since he is closing the account, he stops adding any more penalty years. There is probably a decent chance the IRS will waive these penalties, but that would still require the research to file a 5329 for each year starting in 2002 to determine the RMD that should have been taken. If he completes all these forms and states a reason for missing the RMDs and states that the entire account was distributed, the IRS may waive these penalties. If they do not, he would owe the penalty plus interest for late payment. Instead, if he chooses to not do the 5329 forms that alert the IRS, he should be aware that there is no statute of limitations for the IRS to levy the penalty. I have not heard of a case where the IRS went back several years to charge these penalties, but they legally could.

 

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